4 Characterizations of the Healthcare Financial Landscape

It's easy to say that healthcare has too many "uncertainties" today, especially when it comes to reimbursement and other financial issues. Clichés are comforting, but they can also be very shallow.

For hospital CEOs and CFOs who are creating short- and long-term fiscal strategies, there must be specific, defined goals on how the hospital plans to stay afloat — not just clichés.  

Tony Colarossi, partner and leader of the healthcare consulting practice at accounting and business advisory firm Plante Moran, has more than 30 years of healthcare experience. He has held CFO roles at various non-profit and for-profit community hospitals in California, and for the past 12 years, he has been a hospital consultant with Plante Moran. Here, he gives four observations on the healthcare financial landscape that he believes will be key for hospital leaders going forward.

1. Quality indicators and cost reduction are two of the most important items for a hospital financial team. As hospitals plan for their future, one that will inevitably include value-based reimbursement, executives must focus on quality outcomes and cost reduction, Mr. Colarossi says.

Quality indicators are already a major part of today's healthcare landscape, as CMS implemented the Value-Based Purchasing program last year. Hospitals can either be incentivized or penalized based on readmissions, outcomes for congestive heart failure patients, patient satisfaction and other measures, which increasingly puts more Medicare revenue on the line.

In addition, there has been an industrywide movement to "trim the fat." Former CMS Administrator Bruce Vladeck, PhD, recently said that if he were a hospital executive, he would focus on cutting costs immediately, especially since hospitals have "only begun to scratch the surface" of what can be attained.

"We're focusing on quality and quality incentives as a way to affect behaviors within a health system, and at minimum, quality will be the required state for you going forward," Mr. Colarossi says. "Further, an even [bigger] emphasis has to be on reducing costs."

2. The commercial payors will be the drivers of reducing costs. When Medicare makes any changes to its financial structure, hospitals and health systems watch intently because it is a dominant payor for many. However, Mr. Colarossi says hospitals that create new innovative payment schemes with the commercial payors will be the ones that truly get ahead of the curve.

"My thought process is the government is going to be a great innovation point, but they are not going be the real driver of cost changes," Mr. Colarossi says. "The commercial side is twice as large, and the commercial market pays better than government. As costs are squeezed on the commercial side, more attention will be paid by providers because that's where their margin is today."

"Instead of making money at Medicare rates, from a risk perspective, it's decreasing revenues on the commercial business that is going to be driver of behavioral change," he adds.

3. Membership models will dictate financial success or failure at hospitals. Accountable care organizations, integrated delivery systems, managed care organizations — no matter what the name is, most new, evolving healthcare delivery models have one thing in common: patient members as the primary focus.

Mr. Colarossi says ultimately, the idea of these "membership models" and vertical integration strategies are what will prevail in hospital communities. Hospitals will play more of a role as insurer, while payors will play more of a role in data analytics for population health. Further, he and others believe commercial-based ACOs, not Medicare ACOs, are the instruments that will yield the most savings.

"I think [commercial ACOs] are the future for defining market share," he says. "They are changing how they are being perceived."

4. The post-acute continuum needs to be built into a hospital's fiscal strategy. Skilled nursing facilities, home health agencies and other post-acute care providers are being targeted more in hospitals' strategies — especially in bundled payment settings. Mr. Colarossi views this as a positive way to build the full "continuum" of care, especially as the geriatric population grows by the tens of thousands every day.

"Why can't we utilize [post-acute providers] to do more navigation and remote monitoring of patients?" Mr. Colarossi says. "It provides a revenue stream to support those full-time equivalents of the future, and it applies a specific skill set in dealing with the seniors' needs of the future."

More Articles on Healthcare Reform:

3 Approaches Hospitals Should Take to Financial Reforms
Moody's: Value-Based Care Paramount for Hospitals' Future Credit, Finances
Study: New "Medicare Essential" Option Could Save $180B

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